Ghana Becomes VW's Latest Target For Vehicle Assembly

Ghana's growing middle class will be able to support VWs low volume vehicle production industry.

The increasingly urbanised population and the limited affordability will make VWs "Mobility Concept" a more viable avenue for Ghana.

In August 2018, Volkswagen AG (VW) and the government of Ghana signed a memorandum of understanding with the aim of establishing a vehicle assembly facility in the country, and completing a market feasibility study for VWs "Mobility Concept" (in the form of an integrated mobility solution possibly involving car sharing, ride hailing and shuttle services). VW expects to enter the Ghanaian automotive market with the same model it adopted in Rwanda earlier this year ( see 'VW Mobility Services To Benefit From Low Car Ownership', March 5). Although we only forecast average annual growth of 2.0% in first passenger car registrations over our 2018-2027 forecast period and that a majority of new registrations consisting of used imports, Ghana still presents an opportunity for low volume vehicle production due to its growing number of households with disposable income above USD10,000.

We believe that the strong growth in the number of households with disposable income above USD10,000 highlights a market for VW. Our Country Risk team forecasts the number of households with disposable income above USD10,000 to increase form an estimate 17,400 in 2017 to a high of 75,500 households by the end of our 2018-2022 forecast period. This highlights the growing market for new vehicles in Ghana and the growing number of possible consumers for VW to target.

The growing urban population and consumers' limited ability to afford new vehicles will prove attractive for VWs "Mobility Concept". Currently, the urban/rural split of Ghana's population is around 54% (14.9mn) of the population living in urban territories and the remaining 46% (12.7mn) residing in rural areas ( see 'Favourable Trends From Growing Young, Urban Population', January 26). This gap is expected to widen over the coming decade as large parts of the population move into urban areas and small towns grow in line with the total population. As a result, we forecast that by 2027, the country's urban population will soar to 61% of Ghana's total population which will provide a large market for services such as car sharing, ride hailing and shuttle services.

Furthermore, the high cost of credit will continue to pose a barrier to vehicle ownership and this will further benefit VWs "Mobility Concept". Commercial bank lending rates have only slowly started to come down, averaging 29.1% as of January 2018, 9.1% higher than the central bank policy rate at the time. In turn, the persistently elevated cost of borrowing has seen loan growth come in at 5.0% y-o-y in January 2018 - the most recent available data - against an average of 26.7% y-o-y in the five years to December 2017. This still high cost of borrowing will continue to limit the ability of the Ghanaian population to finance new vehicle purchases through credit and will make the young increasingly urbanised population more willing to adopt VWs "Mobility Concept".